New Scheme of Taxation U/S 115BAC of Income Tax Act, 1961

A new scheme of taxation has been introduced by the Finance Act, 2020 by insertion of a new Section 115BAC. The basic feature of this new tax regime is lower tax rates as compared to existing slab rates but on the other hand the assessee has to forego around 70 exemptions and deductions presently available.

APPLICABILITY OF THE SCHEME

This scheme is applicable w.e.f. Assessment Year 2021-22. It is applicable to

• Individuals
• HUFs
• Both Resident as well as Non-Residents

The scheme is, however optional and the assessee can continue with the existing system of taxation. The switchover from one scheme to the another is allowed subject to certain conditions as discussed later.

The tax rates under the New Tax Regime as per the section 115BAC are as under

It is to be noted here that the slab rate of Rs. 3,00,000/ Rs. 5,00,000 enjoyed by Senior Citizens/Super Senior Citizens  in Old slabs will not be available to them if they opt for this new tax regime. However, Rebate U/S 87A, Surcharge, Education Cess, Special Rates of Chapter XII will be same in the new tax regime as it is the existing system.

Exemptions and Deductions not claimable under the new tax regime

The following are some of the major deductions and exemptions you cannot claim under the new tax regime

• The standard deduction under Section 80TTA/80TTB, professional tax and entertainment allowance on salaries
• Leave Travel Allowance (LTA)
• House Rent Allowance (HRA)
• Minor child income allowance
• Helper allowance
• Children education allowance
• Other special allowances [Section 10(14)]
• Interest on housing loan on the self-occupied property or vacant property (Section 24)
• Chapter VI-A deduction (Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA)
• Exemption or deduction for any other perquisites or allowances
• Deduction from family pension income

What are the exemptions and deductions available under the new regime

You can claim tax exemption for:

• Transport allowances in case of a specially-abled person.
• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
• Any compensation received to meet the cost of travel on tour or transfer.
• Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
• Deduction for employer’s contribution to NPS account (Section 80CCD(2)).
• Deduction for additional employee cost (Section 80JJA).

Can i choose between the new tax regime and the existing regime?

A salaried taxpayer can choose the new tax regime at the beginning of FY 2020-21 and intimate their employer. The employee cannot change their choice anytime during the financial year. However, they can change their choice when filing the income tax return in july 2021.

The due date for tax filing for the FY 2020-21 (AY 2021-22) is 31st Dec 2021 (extended from 31st July 2021).

In case an employee does not choose the new tax regime at the beginning of the financial year, the employer will deduct tax (TDS) under the existing tax regime. Hence, a salaried taxpayer can opt in and opt out every year. That means you can choose the new tax regime in one year and choose the regular tax regime in another year.

A non-salaried taxpayer has to choose the new regime when filing the tax return. They need not declare or intimate their choice to anyone during the year. However, a non-salaried taxpayer (taxpayers with an income from business or profession) cannot opt-in and opt-out of the new tax regime every year. Once a non-salaried opts out of the new tax regime, they cannot opt-in again for the new tax regime in the future.

For more details, Please watch our video